Income Tax Exemptions For Political Parties

Political parties in India are governed by The Representation of the People Act, 1951 (RPA). Any association of Indian citizens or body of individual citizens of India calling itself a political party needs to make an application to the Election Commission to get itself registered under Section 29A as a political party in order to take part in elections and for other provisions of RPA. RPA also allows political parties to receive voluntary contributions from anyone, including corporate companies (but not government companies) and exclude contributions from foreign sources such as from citizens of a foreign country, foreign companies, corporations, and trusts.

India’s political parties, BJP, Congress, AIDMK, AAP, etc., are all registered with the Election Commission under RPA.

Section 13A of the Income Tax Act 1961 deals with tax provisions relating to political parties. In this article, we have discussed the following topics relating to such provision:

What Is Political Party For The Purpose Of Section 13A?

A political party for the purpose of Section 13A means a party registered under Section 29A of the Representation of the People Act, 1951.

Do Political Parties Pay Any Tax?

Political parties are barred from taking any activity of a commercial nature and thereby earning profits. This does not mean the political party does not have any income at all. As already mentioned, political parties are allowed to accept voluntary contributions under RPA. Further, political parties may also own immovable properties or deposits, which might be earning some income. Political parties may have income from the sale of coupons, membership fees collected, and more.

However, Section 13A has given 100% exemption to political parties on their income from house property, income from other sources, capital gains and voluntary contributions received from any person subject to conditions. These have been discussed below.

Conditions For Applicability Of Section 13A

Political parties to enjoy tax exemption provided under Section 13A need to fulfil the following conditions:

• To be registered under Section 29A of the RPA
• Maintain books of account and other documents so as to enable the Assessing Officer to deduce its income – It may be noted that the Political party need not maintain all books of account as mentioned under Section 44AA. It is sufficient if a political party maintains only such books for AO to arrive at its income.
• To maintain records of each contribution of more than Rs 20,000, including the name and address of the person making such contribution unless the contribution is made by way of electoral bond
• To get its books of account audited by a chartered accountant.
• Has not received any donation of more than Rs 2,000 otherwise than by way of account payee cheque/demand draft or ECS or through bank account or electoral bond.
• Treasurer of political party / any person authorised by the political party on this behalf has furnished a report of donations received in excess of Rs 20,000 to the Election Commission of India for the financial year on or before the due date for filing the return of income for such financial year under Section 29C of RPA.

While the condition of no tax relief for non-furnishing of such a report is coming out of Section 13A, it may be noted that Section 29C of RPA itself takes away tax relief to a political party if it fails to furnish such a report.

Should Political Party Furnish Return Of Income? 

Yes, though political party has 100% exemption on specified income, it is not given any relief from furnishing return of income. Any political party as per Section 13A is required to furnish return of income under Section 139(4B) if its income exceeds maximum amount not chargeable to tax (limit is computed before taking into consideration Section 13A exemption). Tax slab applicable for political parties is same as the one applicable to normal resident individual.

It is the responsibility of the Chief Executive Officer of the political party to file the return of income and also to sign and verify the same.

Income Tax Return Form To Be Filed By Political Parties

Political parties are required to furnish their return of income in ITR 7. ITR contains following major information to be filled by political parties:

• Balance sheet – broad information regarding main source of funds (corpus/general funds, loans etc) and application of funds (asset, investment, advances etc)
• Income and Expenditure Account – Income from fee/grants, donations sale of coupons etc and expenses
• Contribution report – Details regarding donors who made contribution in excess of Rs 20,000
• Whether political party is registered under Section 13A
• Whether report under Section 29C of RPA is filed and date of submission of report

Is There Any Tax Exemption For Donors?

Corporate donors are eligible to claim exemption on its donation to political parties under Section 80GGB and any other person (except local authority and every artificial juridical person wholly or partly funded by the Government) can claim exemption under Section 80GGC, unless such contribution is made by way of other than cash.